Investment Matters

What Matters this week: quarterly production reports, Asaleo downgrade, Afterpay and Transurban (again)

On Monday, what mattered was the release of Whitehaven Coal’s Q4 FY-18 quarterly report.  Production volume was flat year-on-year (i.e. as compared to FY-17).  However, with thermal coal prices at seven year highs, both shareholders and government coffers will be happy when FY-18 financial results are released next month. 

Also on Monday, draft guidelines were released by the regulator (AER) for the rate of return for electricity distribution businesses – which is essentially how much profit they can make. Analysts are expecting a modest negative impact on companies such as AusNet (Victoria’s electricity transmission network, five electricity distribution networks and gas distribution) and Spark Infrastructure (49% owner of two Victoria distribution networks, as well as part ownership of electricity networks in SA and NSW).  But maybe electricity prices won’t be going up for us!

And also maybe not for Asaleo Care (personal care and hygiene, including brands such as Handee, Libra, Tena and Sorbent) who on Tuesday, cited it as one of the factors that contributed to it being the downgrade of the week.  Other factors included higher pulp prices and competitive pressures.  FY-18 forecast earnings (EBITDA) -24%, vs FY-17.  Share price -34.8% on the day.

On Wednesday, Bega Cheese announced it is going to acquire Suputo Dairy processing facility in Koroit in Western Victoria, for $250mill.  Geographical diversification and production growth (volume and product type) were cited as benefits of the acquisition.  Additionally, NRW Holdings (mainly civil services for the mining sector) announced the award of a $176mill contract with BHP to provide bulk earthworks and concrete works at the South Flank iron ore project. Bega +4.0% (but -6.0% yesterday, when the funding and price of the deal came under a bit more scrutiny), and NRW +9.6%.

Moving to yesterday, Afterpay (short-term loans for retail purchases) announced record sales for FY-18; 171% higher than for FY-17.  Q4 sales were 39% higher than Q3, indicating the boom is accelerating.  One wonders when the regulators will pass the wand of sensibility / responsibility for this sector…

The wave of quarterly reports continued from energy and mining companies (including Evolution Gold, OZ Minerals, Santos and Woodside).  Generally, they have been on track to slight exceed expectations.  And Transurban is in the headlines again this week.  It reduced its fees (e.g. the price of a tag, or number plate matching) for Citylink customers following the negative press last week, but reportedly put them up on other toll roads.  Furthermore, the ACCC delayed its decision whether it can bid for controlling interest in the WestConnex toll road in Sydney (NSW government needs it to bid as there is apparently only one other bidder, so the ACCC is basically damned if it does, damned if it doesn’t).

To wrap the week, today Oil Search announced a 3 year supply contract with PetroChina to supply LNG from the PNG LNG project.  This deal comes as the oversupply situation is increasingly expected to turn around in coming years (Oil Search say this will happen in the first half of next decade), so this shorter term contract will allow the company to take advantage of this.  The degree that Australian LNG producers will benefit from increasing demand / prices will depend on the terms of their long-term contracts (which are not openly disclosed), and the amount of uncontracted volume.